UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report July 19, 2001
Commission file number 1-10948
OFFICE DEPOT, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2663954
---------------------------------- --------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Old Germantown Road, Delray Beach, Florida 33445
(Address of principal executive offices) (Zip Code)
(561) 438-4800
(Registrant's telephone number, including area code)
Former name or former address, if changed since last report: N/A
ITEM 5. OTHER EVENTS
On July 19, 2001, Office Depot, Inc. issued a press release, with earnings
information for its second fiscal quarter, ended June 30, 2001. A copy of the
press release is attached hereto as Exhibit 99.1 and incorporated by reference
herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
99.1 Press release dated July 19, 2001, announcing financial results for the
Company's second fiscal quarter, ended June 30, 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OFFICE DEPOT, INC.
Date: July 19, 2001 By: /S/ DAVID C. FANNIN
David C. Fannin
Executive Vice President and
General Counsel
OFFICE DEPOT
- --------------------------------------------------------------------------------
NEWS RELEASE
Contact: Eileen H. Dunn
Vice Presient, Investor Relations/Public Relations
561/438-4930
edunn@officedepot.com
---------------------
Lauren Garvey
Director, Media Relations
561/438-2895
lgarvey@officedepot.com
-----------------------
OFFICE DEPOT ANNOUNCES SECOND QUARTER 2001 RESULTS
o EPS Below Prior Year, But Exceed Consensus Estimates by $0.02
o Completed Major Retail Re-Merchandising Program
o Continued Improvements on Key Operating Initiatives
o E-Commerce Sales up 64% in Q2; Almost 75% Year to Date
(DELRAY BEACH, FL) July 19, 2001 - OFFICE DEPOT, INC. (NYSE:ODP), the world's
largest seller of office products, today announced second quarter results for
the period ended June 30, 2001.
Total sales for the second quarter decreased 3% to $2.6 billion compared to the
second quarter of 2000. Sales for the first six months of 2001 decreased 2% to
$5.6 billion compared to the first half of 2000. Comparable worldwide sales in
the 814 stores and 41 delivery centers that have been open for more than one
year decreased 2% for the second quarter and 1% for the first half of 2001.
Continued economic weakness was a primary contributor to the decline in North
American sales and a strong U.S. dollar continued to impact translated results
in the Company's International Division.
The Company recorded net income of $42.0 million (or $0.14 per share) for the
second quarter as compared to $57.9 million (or $0.18 per share) for the same
period in 2000. Included in the second quarter results for 2001 were net charges
primarily related to the non-cash write-downs of investments in certain Office
Depot Internet marketing partners totaling $5.9 million ($3.7 million net of
taxes, or $0.01 per share). Included in the second quarter results for 2000 were
charges of $8.4 million ($5.2 million net of taxes, or $0.02 per share). On a
year to date basis, the Company recorded net income of $98.3 million (or $0.33
per share) for the first six months of 2001 as compared to $167.0 million (or
$0.50 per share) for the same period in 2000. Included in the results for the
first six months of 2001 were net charges primarily related to write-downs of
investments in certain Office Depot Internet marketing partners totaling $6.3
million ($4.0 million net of taxes, or $0.01 per share). Included in the results
for the first six months of 2000 were $9.4 million ($6.0 million net of taxes,
or $0.02 per share) of charges, and a gain on the sale of an investment of $19.0
million ($11.9 million net of taxes, or $0.03 per share).
Bruce Nelson, Office Depot's CEO, commented, "The continued weakness in the
North America economy and the strengthening U.S. dollar overseas are `masking'
otherwise significant improvements in Office Depot's operating results, and our
progress towards making Office Depot a more compelling place to work, shop and
invest.
"Our North American Retail Division gross margin percentage in this quarter was
the highest since the second quarter of 1999. Our retail merchandise in stock
position improved, retail customer service complaints were down 22%, and the
overall retail customer service index levels improved 180 basis points during
the quarter. These improved results were overshadowed by continued softness in
computer hardware and software sales. Overall, comparable sales growth in these
categories declined 27% in the second quarter.
"But, by far, the most significant accomplishment in retail was the completion
of our entire chain-wide re-merchandising program. This new comprehensive
re-merchandising and product layout in all U.S. stores was completed on time, on
budget, and with little disruption to store operations. We executed the new
plan-o-grams during evening hours in order to minimize their impact on
customers' shopping experience, and tracked each store's progress daily via the
Company Intranet. The store changes include significant improvements in product
adjacencies; new, vibrant and informative signage; increased availability of
private label merchandise; and new customer friendly reference charts on
technology products. The end result is a more compelling, customer friendly and
informative shopping experience. While it is still too early to call, we are
beginning to see signs of improved retail gross margins and slightly higher
market basket transactions since the completion of this rollout.
"For the second consecutive quarter, total operating costs in our Business
Services Group declined as a percentage of sales. At the same time, virtually
all of our customer service and quality metrics improved. We have now completed
16 of the 17 planned consolidations of Office Depot call centers, which has
resulted in lower operating costs and vastly improved service for our customers.
"Our operating profit margin in our International Division reached 14%, higher
than any quarter in fiscal year 2000, although slightly less than first quarter,
primarily as a result of the negative U.S. dollar currency translation. During
the quarter we launched our European Business Services Division into Ireland and
The Netherlands. This new sales channel leverages the Company's already highly
efficient merchandising, administrative, financial and logistics infrastructure
in each of those countries and positions Office Depot for even higher future
growth rates in these countries."
OTHER SECOND QUARTER HIGHLIGHTS INCLUDE:
o Worldwide e-commerce sales grew 64% to $360.2 million during the
quarter, as compared to $220.3 million for the second quarter of 2000.
Worldwide e-commerce sales grew for the first six months of 2001 by
74% to $719.6 million, as compared to $412.9 million in 2000. These
e-commerce sales include all worldwide online sales, including those
from our domestic public Web sites - http://www.officedepot.com and
http://www.vikingop.com -- and Office Depot's contract
business-to-business sites, as well as the Company's nine
international Web sites. For business segment reporting purposes,
these sales are reported separately in the appropriate business
segment.
o Acquired the leading contract stationer in Western Australia, Sands &
McDougall. This acquisition positions Office Depot to enter the medium
and large customer segments in that part of Australia and provides the
Company with a warehouse in Perth that will dramatically improve
Viking's service in Western Australia.
o Acquired the key assets of Officesupplies.com, a leading online
supplier of office products. This acquisition in the online office
supplies space adds new incremental business customers while
leveraging our existing infrastructure in ordering, fulfillment and
customer service.
o Sold through private placement $250 million in senior subordinated
notes that mature on July 15, 2008. The notes have a 10% coupon rate
and are rated Ba1 by Moody's and BB+ by Standard & Poor's rating
agencies. Proceeds will be used to repay short-term debt and to
support current working capital needs and enhance the Company's
financial flexibility.
o Announced "Free Supplies for Your School" Program in the U.S. and
Canada. For the second year in a row, Office Depot will credit 5% of
all qualifying school product purchases toward designated schools,
selected at the time of purchase, beginning July 22 and running through
September 30, 2001.
2001 SECOND HALF OUTLOOK:
In discussing the Company's outlook for the second half of the year, Mr. Nelson
commented, "The overall softness in the U.S. economy, and the uncertainty
regarding short-term prospects for recovery will continue to be important
factors in our second half performance. As we look forward, until the demand for
technology shows some signs of improvement, we continue to expect negative comps
in our North American Retail Division. Sales in our small business customer
segments continue to be soft, and we began to see weakness in our medium to
large accounts in the month of May, that continued throughout the month of June.
As a result, we now expect this business segment to remain soft for the balance
of the year.
"On the international front, the month of May was soft, but we experienced some
improvement in June. So far, Germany and France seem to be the countries most
impacted by slowing economies, but we remain confident that in local currencies
our overall international operating profit will not be negatively affected.
Given the current strength, and uncertain direction, of the U.S. dollar, we
believe currency translation could continue to negatively impact our reported
U.S. dollar results during the third and fourth quarters of 2001.
"Based on all of these factors, we do see some potential risk to our top line
results in the second half of 2001. But we are seeing improvements in gross
margins and we continue to aggressively manage our costs. We are maintaining
tight controls on capital spending, and are seeing continued improvements in
workflow and processes; and productivity is increasing. In addition, we continue
to identify new ways to manage and drive accountability across our organization.
Therefore, at this point in time we see no reason to change our earnings
guidance for 2001. We will issue a mid-quarter status report, as is our
customary practice, during mid to late August to update changes, if any, to our
expectations.
"Our goal is simple: to make Office Depot the most compelling place to work,
shop and invest. We are making great strides in accomplishing that mission. Our
employee retention rates are increasing, our customer loyalty rates are growing,
and as we demonstrate our ability to execute, we are gaining the confidence of
our shareholders."
Segment Results
North American Retail Division
Second Quarter Year-to-Date
(In millions of dollars) 2001 2000 2001 2000
- ------------------------ ---- ---- ---- ----
Sales $ 1,284.3 $ 1,416.0 $ 2,895.5 $ 3,211.7
COGS and Occupancy Costs 978.7 1,085.0 2,249.2 2,472.0
-------- -------- -------- --------
Gross Profit 305.6 331.0 646.3 739.7
Operating and Selling
Expenses 230.5 228.0 486.7 479.9
-------- -------- -------- --------
Operating Profit 75.1 103.0 159.6 259.8
Sales in the North American Retail Division declined 9% to $1.3 billion for the
second quarter of 2001, as compared with $1.4 billion for the second quarter of
2000. Sales declined 10% to $2.9 billion during the first six months of 2001, as
compared with $3.2 billion during the first six months of 2000. Comparable store
sales in the 781 stores in the U.S. and Canada that have been open for more than
one year decreased by 9% and 10% in comparison to the second quarter and first
half of 2000, respectively. Store operating profit was $75.1 million in the
second quarter and $159.6 million for the first six months of 2001, as compared
with $103.0 million in the second quarter and $259.8 million for the first six
months of 2000. Gross margins primarily benefited from changes in product mix
away from lower margin technology products and other merchandising initiatives.
Operating costs were negatively impacted by the payroll costs associated with
the chain-wide re-merchandising program. Negative comparable sales growth,
primarily the result of lower technology sales and the related market basket of
items, and the historical low sales volume in the second quarter, caused a
negative impact on operating profit due to a lack of leverage on fixed costs.
During the second quarter, we opened five new office supply superstores, net of
closures, in four states. At the end of the quarter, Office Depot operated a
total of 829 office product superstores throughout the United States and Canada.
BUSINESS SERVICES GROUP
Second Quarter Year-to-Date
(In millions of dollars) 2001 2000 2001 2000
- ----------------------- ---- ---- ---- ----
Sales $ 913.8 $ 870.7 $ 1,894.8 $ 1,754.6
COGS and Occupancy Costs 623.1 587.9 1,307.3 1,196.1
------ ------ -------- --------
Gross Profit 290.7 282.8 587.5 558.5
Operating and Selling
Expenses 216.7 211.3 453.1 427.8
------ ------ -------- --------
Operating Profit 74.0 71.5 134.4 130.7
Sales in the Business Services Group increased 5% to $913.8 million in the
second quarter of 2001, as compared with $870.7 million for the comparable
period of 2000. For the first six months of 2001, sales increased 8% to $1.9
billion, as compared to $1.8 billion in the first six months of 2000. Warehouse
operating profit was $74.0 million in the second quarter and $134.4 million in
the first six months of 2001, as compared with $71.5 million in the second
quarter and $130.7 million in the first six months of 2000. Overall gross profit
margins declined by 68 basis points, for the quarter, and are primarily
attributable to weakness in our catalog business that offset margin improvement
in our contract business. Warehouse operating and selling expenses declined by
56 basis points as a result of reductions in warehouse operating costs and lower
selling costs.
INTERNATIONAL DIVISION
Second Quarter Year-to-Date
(In millions of dollars) 2001 2000 2001 2000
- ----------------------- ---- ---- ---- ----
Sales $ 356.0 $ 347.0 $ 782.7 $ 734.0
COGS and Occupancy Costs 213.4 208.9 470.2 442.3
------ ------ ------ ------
Gross Profit 142.6 138.1 312.5 291.7
Operating and Selling
Expenses 93.0 95.0 199.6 198.7
------ ------ ------ ------
Operating Profit 49.6 43.1 112.9 93.0
Sales in the International Division increased 3% (11% in local currencies) to
$356.0 million in the second quarter of 2001, as compared with $347.0 million in
the comparable period of 2000. Included in second quarter results were same
store sales in our French retail business that grew by more than 12% in local
currencies. International sales increased 7% (16% in local currencies) to $782.7
million in the first six months of 2001, as compared with $734.0 million in the
comparable 2000 period. Unfavorable exchange rates continue to impact reported
sales by approximately $30.2 million for the quarter and $68.6 million for the
first six months of the year.
Store and warehouse operating profit in the International Division improved 15%
(23% in local currencies) to $49.6 million for the second quarter and improved
21% (31% in local currencies) to $112.9 million for the first six months of
2001, as compared with $43.1 million and $93.0 million for the respective 2000
periods. International operating margins were slightly impacted by the early
start-up costs of our new European Business Services Division in the U.K.,
Ireland and The Netherlands. Operating profit continues to be negatively
impacted by unfavorable exchange rates by approximately $3.6 million in the
second quarter and $9.3 million in the first six months of 2001.
Office Depot retail stores operate in the following countries, through a
combination of wholly owned operations, joint ventures and international
licensing agreements:
Second Quarter Open at
Activity Quarter End
Number of Stores Opened Closed 2001 2000
- ---------------- ------ ------ ---- ----
Mexico (Joint Venture) 1 -- 55 44
France (*) -- 1 27 27
Israel (Joint Venture & License) -- -- 22 22
Poland (License) -- -- 16 16
Japan (*) -- -- 7 7
Hungary (License) -- -- 3 3
Thailand (License) -- -- 2 2
Colombia (Operations have been
terminated) -- -- -- 2
--------------------------------
Total 1 1 132 123
(*) Office Depot wholly owned stores
Along with its retail stores, the Company also has delivery and catalog
operations in 14 countries outside of the United States and Canada.
- --------------------------------------------------------------------------------
Conference Call Information Office Depot will hold a conference call for
investors and analysts at 8:00 a.m. (Eastern Time) on today's date. The
conference call will be available to all investors via Webcast at
http://www.officedepot.com/companyinfo under Investor Relations. Interested
parties may contact Investor Relations at 561-438-1680 for further information
on the conference call.
- --------------------------------------------------------------------------------
As of June 30, 2001 Office Depot operated 829 office supply superstores in the
United States and Canada, in addition to a national business-to-business
delivery network supported by 25 delivery centers, more than 60 local sales
offices and eight regional call centers. Furthermore, the Company had operations
in 16 countries outside of the United States and Canada, including 27 office
supply stores in France and seven in Japan that are owned and operated by the
Company; and 98 additional office supply stores under joint venture and
licensing agreements operating under the Office Depot(R) name in five foreign
countries. The Company also operates an award-winning U.S. Office Depot(R) brand
Web site at http://www.officedepot.com where customers can access Office Depot's
low competitive prices seven days a week, twenty-four hours a day, and it
operates http://www.officedepot.co.jp in Japan and http://www.officedepot.fr in
France as well as Viking(R) brand Web sites at http://www.vikingop.com in the
United States, http://www.viking-direct.co.uk in the United Kingdom,
http://www.viking.de in Germany, http://www.vikingdirect.nl in The Netherlands,
http://www.vikingop.it in Italy, http://www.vikingop.com.au in Australia,
http://www.vikingop.co.jp in Japan and http://www.vikingdirect.fr in France.
Office Depot's common stock is traded on the New York Stock Exchange under the
symbol ODP and is included in the S&P 500 Index.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: Except for historical
information, the matters discussed in this press release are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, as amended. Forward-looking statements, including without limitation all
of the projections and anticipated levels of future performance, involve risks
and uncertainties which may cause actual results to differ materially from those
discussed herein. These risks and uncertainties are detailed from time to time
by Office Depot in its filings with the United States Securities and Exchange
Commission ("SEC"), including without limitation its most recent filing on Form
10-K, filed on March 27, 2001 and all subsequent filings with the SEC. You are
strongly urged to review all such filings for a more detailed discussion of such
risks and uncertainties. The Company's SEC filings are readily obtainable at no
charge at http://www.sec.gov, http://www.10kwizard.com and at
http://www.freeEDGAR.com, as well as on a number of other commercial Web sites.
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
June 30, June 24, June 30, June 24,
2001 2000 2001 2000
-------- -------- -------- --------
Sales $2,553,503 $2,632,850 $5,571,417 $5,698,507
Cost of goods sold
and occupancy costs 1,814,850 1,881,337 4,025,848 4,109,348
---------- ---------- ---------- ----------
Gross profit 738,653 751,513 1,545,569 1,589,159
Store and warehouse
operating and
selling expenses 539,957 533,955 1,138,784 1,105,740
Pre-opening expenses 1,464 3,157 2,600 5,807
General and
administrative expenses 119,303 115,053 228,905 221,402
Merger and restructuring
costs 580 3,352 1,013 4,381
Facility closure costs (3,164) - (3,164) -
---------- ---------- ---------- ----------
658,140 655,517 1,368,138 1,337,330
Operating profit 80,513 95,996 177,431 251,829
Other income (expense):
Interest income 2,217 3,521 3,824 6,885
Interest expense (8,515) (7,070) (18,796) (14,266)
Miscellaneous income
(expense), net (7,589) (483) (6,426) 20,589
---------- ---------- ---------- ----------
Earnings before
income taxes 66,626 91,964 156,033 265,037
Income taxes 24,652 34,027 57,730 98,064
---------- ---------- ---------- ----------
Net earnings $41,974 $57,937 $98,303 $166,973
========== ========== ========== ==========
Earnings per common
share:
Basic $0.14 $0.18 $0.33 $0.52
Diluted 0.14 0.18 0.33 0.50
Weighted average number of common shares outstanding:
Basic 297,085 313,696 296,590 318,651
Diluted 313,480 340,567 313,010 345,956
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
As of As of
June 30, December 30,
2001 2000
------- -----------
Assets
Current assets:
Cash and cash equivalents $ 189,609 $ 151,482
Receivables, net 783,614 896,333
Merchandise inventories, net 1,114,054 1,420,825
Deferred income taxes and other assets 176,274 230,449
----------- -----------
Total current assets 2,263,551 2,699,089
Property and equipment, net 1,092,862 1,119,306
Goodwill, net 221,872 219,971
Other assets 150,761 157,968
----------- -----------
$ 3,729,046 $ 4,196,334
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 918,707 $ 1,136,994
Accrued expenses and other liabilities 542,568 580,966
Income taxes payable 64,593 37,118
Current maturities of long-term debt 7,925 153,259
----------- -----------
Total current liabilities 1,533,793 1,908,337
Deferred income taxes and other credits 50,557 88,247
Long-term debt, net of current
maturities 229,718 374,061
Zero coupon, convertible subordinated
notes 230,023 224,438
Commitments and Contingencies
Stockholders' Equity
Common stock - authorized 800,000,000
shares of $0.01 par value; issued
380,686,294 in 2001 and 378,688,359
in 2000 3,807 3,787
Additional paid-in capital 953,459 939,214
Unamortized value of long-term
incentive stock grant (2,770) (2,793)
Accumulated other comprehensive income (82,377) (53,490)
Retained earnings 1,614,994 1,516,691
Treasury stock, at cost - 82,190,548
shares in 2001 and 2000 (802,158) (802,158)
----------- -----------
1,684,955 1,601,251
----------- -----------
$ 3,729,046 $ 4,196,334
=========== ===========
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
26 Weeks 26 Weeks
Ended Ended
June 30, June 24,
2001 2000
------- --------
Cash flows from operating activities:
Net earnings $ 98,303 $ 166,973
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 97,744 96,179
Provision for losses on inventories
and receivables 61,085 47,630
Changes in working capital 135,532 18,585
Loss (gain) on investment securities 8,500 (18,960)
Other operating activities, net 22,028 8,759
--------- ---------
Net cash provided by operating activities 423,192 319,166
--------- ---------
Cash flows from investing activities:
Proceeds from maturities or sales of
investment securities -- 18,960
Purchases of investments and other assets (6,842) (21,612)
Capital expenditures, net of proceeds
from sales (71,546) (126,370)
--------- ---------
Net cash used in investing activities (78,388) (129,022)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options
and sale of stock under employee stock
purchase plans 8,851 7,431
Acquisition of treasury stock -- (200,457)
Proceeds from issuance of long-term debt 4,851 8,421
Payments on long- and short-term borrowings (297,416) (3,321)
--------- ---------
Net cash used in financing activities (283,714) (187,926)
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents (22,963) (7,879)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 38,127 (5,661)
Cash and cash equivalents at beginning
of period 151,482 218,784
--------- ---------
Cash and cash equivalents at end
of period $ 189,609 $ 213,123
========= =========